Loans to Trusts

Loans to Trusts

Loans to Trusts

Trust Loans & Prop 19: Minimize Property Tax Reassessment

As you probably know, a trust in California generally reflects a financial instrument, frequently associated with a family estate, usually created with an estate attorney — and if it’s an irrevocable trust, usually with a trust lender involved — where a “trustor” (the person who created the trust agreement) entitled someone with the authority to manage the trust, called a “trustee”… also able to hold title to property or assets for the benefit of any and all beneficiaries to the trust.

Besides the fact that trusts are known to be a financial instrument good for deferring or lowering income taxes and property taxes… a trust often allows a company or a person to own assets that belong to a group of people that would be called beneficiaries, a family that would officially be known as beneficiaries to the trust… or even just one person, that would be known as “the beneficiary to the trust”.

However, frequently much to the chagrin of the beneficiaries – a trust is always managed and controlled by a trustee, which can be a person or a company. Including the distribution of liquid assets, if there are liquid assets, to the beneficiaries. Often a source of contest or dispute between trustee and beneficiary, or beneficiary vs. beneficiary.

Trust Loans for Sibling Beneficiaries

Trust loans are often utilized by sibling beneficiaries who want to minimize property tax reassessment, buying out an inherited home from siblings who are looking to sell off their inherited property – generally to establish and retain sole ownership of an inherited home.

Here is where an irrevocable trust loan often steps in to resolve these differences in objectives with their inherited property shares. The solution involves a fast trust loan to fund a beneficiary property buyout – plus usually works in conjunction with Proposition 19 to help minimize property tax reassessment or completely negate property reassessment – saving inheritors thousands of dollars in the final analysis. Californians need to keep a close eye on these new rules and regs just as they must keep up with new rules for property tax transfers in California.

Moreover, using this property inheritance solution, the sibling beneficiaries selling out their inherited property shares end up, in seven to ten days usually, with at least an extra $14,000 or $15,000 in their pocket, as opposed to selling off their inherited property through a realtor, given the standard 6% property sales commission and other ancillary fees and charges.

It adds up. There’s no free lunch, working with a realtor. No matter how convincing the sales pitch is.  It’s certainly worth exploring other options.

If you are in need of a lost to a trust or irrevocable trust, we highly recommend that you call Commercial Loan Corporation at 877-464-1066. The are California’s #1 Trust & Estate lender and can provide you with a free cost benefit analysis on trust loan and parent to child transfer.

How Do California Families Benefit From an Irrevocable Trust?

Irrevocable Trusts and Parent to Child Property Tax Transfers

Irrevocable Trusts and Parent to Child Property Tax Transfers

Positive Property Tax Relief Changes for California Families

California homeowners over the age of 55 or with severe disabilities (which is still not defined as to what the exact definition of “severe” is) will have the ability to transfer their current property tax assessed value (i.e., “base year value transfer”) of their primary residence to another primary residence anywhere in California.

Therefore, various expanded property tax exclusions have become available to Californians in all 58 counties in the state – to get approved for a base year value transfer. Other new property  tax relief breaks in California include tax relief opportunities  for homeowners badly impacted by wildfire or other natural disasters.

Of course to take advantage of a parent-child exclusion, inheriting property taxes in California through a property tax transfer with the right to keep parents property taxes basically forever… one has to be inheriting a home used as a primary residence by parents, and must move in within a year also as a primary residence. But that’s  hopefully a small price for families to pay to avoid property tax reassessment, to continue inheriting property taxes in California, which otherwise would be financially crippling for most middle class and upper middle class Californians.  

How Do CA Families Take Advantage of an Irrevocable Trust?

Simply stated, an irrevocable trust is a trust that features terms and conditions that can’t be revised. This is quite different than a revocable trust, which permits a grantor to revise a trust, and to take property back whenever one wishes.

However, California families can use an irrevocable trust not only to list beneficiaries for a trustee, but also define assets that are to be inherited, by exactly whom, and what the timeline of each inherited asset is to be… Along with the Proposition 58 originated ability to execute a buyout of inherited property from co-beneficiaries looking to sell – to beneficiaries looking to buy them out…

This usually takes place with the help of an experienced trust & estate lender, such as Commercial Loan Corp in Newport Beach, and most likely a law firm experienced in Proposition 19 and property tax relief matters, such as the well respected and well known firm Cunningham Legal in Pasadena – who can also draft an irrevocable trust, and advise a family in naming an appropriate trustee, who is both honest and committed to the trust agreement and it’s benefit to the family being served.

The family-trustee relationship going forward does not always work out in perfect terms, however these are the noted and generally accepted objectives for both family and trustee.

The Family’s Trustee

As you probably already know, a trustee is required to act in the best interest of the trust beneficiaries and implement inheritance distributions to all trust beneficiaries according to the terms of the trust, whether they get along or not… and they often do not.  But the trustee must understand that he or she is there to serve the beneficiaries and the trust — not themselves.  Many trustees miss that fact, and must be reminded of this repeatedly sometimes, until it sinks in.

All family members work with their trustee to utilize Proposition 19 in concert with an irrevocable trust loan to minimize property reassessment and estate tax, to protect assets from creditors… and to keep under-age or special needs family members far away from legal and/or financial responsibility.

Protecting the Family From Creditors and Tax Hikes

Setting up an irrevocable trust, working with an irrevocable trust lender can help take advantage of the significant estate tax savings this sort of trust provides. An irrevocable trust also furnishes meaningful protection from creditors. As soon as assets and real property transfer to an irrevocable trust, they no longer are property of a grantor – who generally are parents of the grantees, or beneficiaries – and these assets now become legal property of the trustee to hold in safe-keeping to later distribute to the beneficiaries – who are typically family members. 

So future creditors can’t place a lien on assets transferred to the trust because those assets no longer belong to the grantor (often the parent or parents).  Creditors of beneficiaries generally can’t place a lien against trust assets until those assets are distributed to the beneficiaries, often the grown children of the deceased parents. So these trust protections are certainly worth examining carefully and discussing with your attorney, as are all new rules for property tax transfers in California.



PART ONE: Coronavirus Crisis in California Motivating State Politicians to Push Harder for “Split-Roll” Property Tax

California Property Taxes

California Property Taxes

The Coronavirus crisis is having a profound effect on various social-economic facets in California, however we will be focusing to a large degree on the real estate market, residential and commercial property issues, and property tax relief.

Moreover, the Coronavirus Pandemic has also apparently infused new support for the Split-Roll property tax in California, to pursue what would without question (if passed) be a “Pyrrhic victory”.  For those of you who might not know what that means, it’s a victory that results in such devastation to the so-called “victor” that the outcome may as well be an actual defeat! Named after King Pyrrhus of Epirus, his army suffered irreplaceable casualties in defeating the Romans at the Battle of Heraclea, in 280 BC.

At any rate, if this misguided property tax measure wins by vote in November at the ballot, many politicians and newspaper editors falsely believe that this revision to the commercial property tax code will “raise billions of dollars for cash-strapped schools and California counties”… with no negative downside. 

Now there is where they are taking the wrong turn in the road.  They even have California Secretary of State Alex Padilla drinking the Cool-Aid, and  taking a stand as primary cheerleader for this tax on middle class small business property owners, modest landlords, and so on. 

Yes, some large cash-rich corporations and wealthy business property owners and landlords will be impacted, of course.  But the critics of Proposition 13 and Proposition 58 tax relief still are continuously attempting to convince  all of us that everyone affected by a business or commercial property tax will be super rich, and therefore it won’t really matter.  

Not so. Not even close to being so.  Sure, a Split-Roll property tax will affect some wealthy commercial property owners… but many  commercial properties are owned by middle class landlords, or even upper middle class commercial property owners basically leveraged to the hilt.  But wealthy?  No.  

In fact, many of these property owners and landlords are just “getting by” – and a property tax like the one these anti property tax relief politicos and newspaper editors want to impose on commercial property owners with the falsely named “Proposition 13” property tax (“coincidentally” with the same title as the 1978  genuine Proposition 13 tax relief measure… simply to confuse voters) would surely serve to destroy hundreds if not thousands of these modest or small business property owners.  With the end result being widespread foreclosure and bankruptcy, obviously.

Not to mention business tenants having to deal with increased rents they will no longer be able to afford… and so all of these goods and services from one end of California to the other will increase virtually overnight!  And we’ll discuss these disastrous side effects later on in this six-part article.

Interestingly enough, none of these critics of the authentic 1978 Proposition 13 tax relief measure acknowledge that any of these negative and dangerous outcomes are a realistic possibility.  They dance around the fact that small businesses and most landlords  in California will not be able to absorb immediate rent increases due to property tax reassessment. 

On the other hand, if small businesses in California aren’t able to raise prices – they will most likely be forced to cut internal costs, which will include cutting employee compensation and benefits, and/or laying off employees.  So we’ll have even more people out of work.  And some of these small businesses, and perhaps larger businesses as well, will have to relocate, or worse case scenario will go completely out of business – creating an oversupply of commercial space AND higher vacancy rates, which would cause commercial property rents and values to actually decline.  Yet another hidden problem. 

This will end up decreasing  job opportunities in California, due to decreased economic activity overall throughout the state. 

This is the guaranteed downside of the Split-Roll tax that, believe it or not, Secretary of State Padilla and other political critics of property tax relief in California are not looking at.  They would do well to start looking… or they are going to step into a disastrous quagmire of their own making, if this property tax actually passes in November. 

Another key point to consider, while we’re on the subject.  Even though politicians on the state and local level claim that a “revised  Prop 13 with Split-Roll tax” includes “a small-business exemption” – it would be advisable to not buy into these vague promises from local politicians whose word is highly suspect at best!  A suspect Split-Roll tax with a reassessment exemption that is highly questionable is only for the most naive of us to believe. 

A Split-Roll tax, supposedly only imposed on commercial property owners in California will be deeply crippling for many if  not all businesses and commercial entities that own business property in California.  The revised property tax measure supposedly expands the “reassessment exemption” to small business owners with property valued at $3 million or less, up from the initial $2 million threshold.  Frankly, this sounds like double-talk to most of us.

One of “us” being Rob Gutierrez,  President of California Taxpayers Association. Mr. Gutierrez says these supposed “protections” for small businesses, a Split-Roll tax with a reassessment exemption that isn’t even close to being strong enough to allow these business owners to survive… with thousands of jobs that would have been for Californians, down the drain!  More people on the Unemployment  Line.  A Split-Roll tax with a reassessment exemption, that is basically worthless. Next, when we’re not looking, they’ll target consumer property tax relief, as well as Prop 13, avoiding property tax reassessment; and Proposition   58 property transfer tax breaks and trust loan tax benefits from trust lenders… That’s their playbook.

“Because so many small businesses rent as opposed to own their commercial space… higher property taxes on the buildings they rent space in will of course result in more expensive rent for them”, Mr. Gutierrez says… “What that translates into is higher prices for consumers and brick-and-mortar stores.  Dry cleaners, grocers, companies that cannot move, will have to find a way to pass these costs on, plus lay workers off…” 

And as usual, who does this get passed on to?  All of us.  The consumers.

>> Click Here: to Continue to Part Two…